elcome to Advanced Accounting. We wrote this book with two major objectives in mind.
First, we seek to reflect the changing topical emphases and content in the advanced accounting course; coverage is completely updated for new developments concerning applicable reporting issues and requirements, including the newest FASB and GASB pronouncements and proposals. We extensively discuss International Financial Reporting Standards where appropriate throughout the book. Second, we write from the perspective of enhancing teachability; many of the topics in this course are complex and require careful explanation. We highlight the major issues in…...

Similar Documents

...Chapter 1
the equity method of accounting for investments
Answers to Questions
1. The equity method should be applied if the ability to exercise significant influence over the operating and financial policies of the investee has been achieved by the investor. However, if actual control has been established, consolidating the financial information of the two companies will normally be the appropriate method for reporting the investment.
2. According to Paragraph 17 of APB Opinion 18, "Ability to exercise that influence may be indicated in several ways, such as representation on the board of directors, participation in policy-making processes, material intercompany transactions, interchange of managerial personnel, or technological dependency. Another important consideration is the extent of ownership by an investor in relation to the extent of ownership of other shareholdings." The most objective of the criteria established by the Board is that holding (either directly or indirectly) 20 percent or more of the outstanding voting stock is presumed to constitute the ability to hold significant influence over the decision-making process of the investee.
3. The equity method is appropriate when an investor has the ability to exercise significant influence over the operating and financing decisions of an investee. Because dividends represent financing decisions, the investor may have the ability to influence the timing of the dividend. If dividends were recorded as......

...Introduction
It is a requirement that, if an entity is defined as a reporting entity, it is required to release financial reports that comply with the Australian Accounting Standards Board (AASB) (Deegan 2008:83).
Two companies have been chosen to analyse their reports, in particular the disclosures made in their respective reports. The two companies chosen to analyse are Commonwealth Bank of Australia (CBA) and Macquarie Bank Limited (MBL).
CBA
The Commonwealth Bank is one of Australia’s leading providers of integrated financial services including retail, business and institutional banking, funds management, superannuation, insurance, investment and broking services.
It is one of the largest listed companies on the Australian Stock Exchange (ASX:CBA).
MBL
On 13 November 2007, Macquarie Bank Limited was restructured to form the newly created Macquarie Group Limited. It businesses comprise a range of investment, commercial and selected retail financial services. It is a global provider of banking, financial, advisory, investment and funds management services. Macquarie Group Limited is listed in Australia (ASX:MQG)
Both companies have subsidiaries and associated entities.
The three disclosures that will be discussed and compared are
1) Foreign Currency transactions – AASB 121
2) Joint Ventures AASB 131
3) Segment Reporting AASB 114
Foreign Currency transactions
AASB 121 governs foreign currency transactions. The disclosure requirements are:
1) Method......

...Question 1: Case analysis
There are many similarities between IFRS and pre-IFRS Canadian GAAP, however there are also significant differences. They are both similar in terms of style and the form of the individual standards because they are based on similar conceptual frameworks. The main objective of both IFRS and pre-IFRS Canadian GAAP is for financial statements to give a fair presentation. When there is a choice of accounting policies, the one that can reflect the most accurate economic portrait should be selected. Since Extract Tar Sands it traded publicly, included in its stakeholders are international investors. It’s compliance with IFRS is necessary to be a global competitor. IFRS will allow easier financial performance benchmarking amongst competing companies. This in turn will provide better access to capital. With the adoption of IFRS it will also eliminate Extract’s need to reconcile information reported under different national standards while providing consistent information for decision making purposes.
The two areas with IFRS that represent the greatest change for Extract tar sands are:
1. Impairment: With IFRS impairments are usually triggered more frequently and unlike pre-IFRS Canadian GAAP, impairments under IFRS can be reversed.
2. Revaluations: Some IFRS including Property, Plant and Equipment, Investment Property and Intangibles allow the revaluation of assets under certain circumstances. This is quite a change from pre-IFRS Canadian GAAP......

...CHAPTER 3 CONSOLIDATIONS—SUBSEQUENT TO THE DATE OF ACQUISITION
Answers to Discussion Questions
How Does a Company Really Decide which Investment Method to Apply? Students can come up with literally dozens of factors that should be considered by Pilgrim in making the decision as to the method of accounting for its subsidiary, Crestwood Corporation. The following is simply a partial list of possible points to consider. Use of the information. If Pilgrim does not monitor its own income levels closely, applying the equity method would seem to be a waste of time and energy. A company must plan to use the additional data before the task of accumulation becomes worthwhile. Size of the subsidiary. If the subsidiary is large in comparison to Pilgrim, the effort required of the equity method may be important. Income levels would probably be significant. However, if the subsidiary is actually quite small in relation to the parent, the impact might not be material enough to warrant the extra effort. Size of dividend payments. If Crestwood pays out most of its earnings each period as dividends, that figure will approximate equity income. Little additional information would be accrued by applying the equity method. In contrast, if dividends are small or not paid on a regular basis, a Dividend Income balance might vastly understate the profits to be recognized by the business combination. Amount of excess amortizations. If Pilgrim has paid a significant amount in excess of book value so......

...to account for the investment. On January 1, 2012, Jordan sold two-thirds of its investment in Nico. It no longer had the ability to exercise significant influence over the operations of Nico. How should Jordan have accounted for this change? A. Jordan should continue to use the equity method to maintain consistency in its financial statements. B Jordan should restate the prior years' financial statements and change the balance in the investment . account as if the fair-value method had been used since 2011. C. Jordan has the option of using either the equity method or the fair-value method for 2011 and future years. D Jordan should report the effect of the change from the equity to the fair-value method as a retrospective . change in accounting principle. E Jordan should use the fair-value method for 2012 and future years but should not make a retrospective . adjustment to the investment account. Tower Inc. owns 30% of Yale Co. and applies the equity method. During the current year, Tower bought inventory costing $66,000 and then sold it to Yale for $120,000. At year-end, only $24,000 of merchandise was still being held by Yale. What amount of intra-entity inventory profit must be deferred by Tower? A. $6,480. B. $3,240. C. $10,800. D. $16,200. E. $6,610.
7.
8.
9.
10. On January 4, 2011, Watts Co. purchased 40,000 shares (40%) of the common stock of Adams Corp., paying $800,000. There was no goodwill or other cost allocation associated with the investment. Watts......

... or some other non-depreciable asset, held by the subsidiary is greater than book value, the amount assigned to the differential will remain constant so long as the subsidiary continues to hold the land. When the differential arises because the fair value of depreciable or amortizable assets is greater than book value, the amount debited to the differential account each period will decrease as the parent amortizes an appropriate portion of the differential against investment income.
Q4-13 Push-down accounting occurs when the assets and liabilities of the subsidiary are revalued on the subsidiary's books as a result of the purchase of shares by the parent company. The basis of accountability that the parent company would use in accounting for its investment in the various assets and liabilities is used to revalue the subsidiary's assets and liabilities; thereby pushing down the parent's basis of accountability onto the books of the subsidiary.
Q4-14 Push-down accounting is considered appropriate when a subsidiary is substantially wholly owned by the parent.
Q4-15 When the assets and liabilities of the subsidiary are revalued at the date of acquisition there will no longer be a differential. The parent's portion of the revised carrying value of the net assets on the books of the subsidiary will agree with the balance in the investment account reported by the parent.
SOLUTIONS TO CASES
C4-1 Reporting Significant Investments in Common Stock
Answers to this......

...ADVANCED FINANCIAL ACCOUNTING 260
IMPAIRMENT
QUIZ QUESTIONS
1. When should an entity conduct an impairment test? (2 Marks)
The following assets require an impairment test every year:
• Intangible assets with indefinite useful lives
• Intangible assets not yet available for use
• Goodwill acquired in a business combination
The impairment test is undertaken when there is indication that an asset may be impaired. This means that, at the end of each reporting period, an entity has to test for the probability that an asset has been impaired. An entity, therefore, has to determine after analysing certain sources of information whether there is sufficient evidence to suspect that an asset may be impaired. It is not automatically undertaken at the end of each reporting period or at the end of any set of period of time.
2. How is an impairment test undertaken? (2 Marks)
The first step is to determine the fair value, costs of disposal, and value in use. Having determined the fair value less costs of disposal and the value in use, these two amounts are compared and the recoverable amount is the higher of these two amounts.
The second step is then to compare the recoverable amount with the carrying amount of the asset as recorded by the entity. The second step is then to compare the recoverable amount with the carrying amount of the asset as recorded by the entity. If the recoverable amount is less than the carrying amount, an...

...Advanced Accounting
Practice Exam II: (Chapters 11, 15, 16)
Multiple Choice (Concepts)
1. Chicago based Corporation X has a number of exporting transactions with companies based in Sweden. Exporting activities result in receivables. If the settlement currency is the Swedish Krona, which of the following will happen by changes in the direct or indirect exchange rates?
A. Option A
B. Option B
C. Option C
D. Option D
2. When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account, which of the following explains the difference?
I. The retiring partner is receiving a bonus from the other partners.
II. The retiring partner's goodwill is being recognized.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
3. In the computation of a partner's Loss Absorption Power (LAP), the individual partner's capital balance and profit-and-loss percentage are used in which of the following ways?
A. Option A
B. Option B
C. Option C
D. Option D
Multiple Choice (Calculation) .
Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9 with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were:
1. Based on the...

...Chapter 1
the equity method of accounting for investments
Chapter Outline
I. Three methods are principally used to account for an investment in equity securities along with a fair value option.
A. Fair value method: applied by an investor when only a small percentage of a company’s voting stock is held.
1. Income is recognized when the investee declares a dividend.
2. Portfolios are reported at fair value. If fair values are unavailable, investment is reported at cost.
B. Consolidation: when one firm controls another (e.g., when a parent has a majority interest in the voting stock of a subsidiary or control through variable interests, their financial statements are consolidated and reported for the combined entity.
C. Equity method: applied when the investor has the ability to exercise significant influence over operating and financial policies of the investee.
1. Ability to significantly influence investee is indicated by several factors including representation on the board of directors, participation in policy-making, etc.
2. GAAP guidelines presume the equity method is applicable if 20 to 50 percent of the outstanding voting stock of the investee is held by the investor.
Current financial reporting standards allow firms to elect to use fair value for any new investment in equity shares including those where the equity method would otherwise apply. However, the option, once taken, is irrevocable. Investee......

...Paul Berro
Accounting 473, Case 1
1-25-16
Fuzzy Dice INC. is a company that manufactures novelty items that are under high demand. Tiny Tots Toys produce educational toys for children and have filed for bankruptcy. Fuzzy INC would like to acquire all of the assets from Tiny Tots Toys but they do not know what to do with the factory after. They are thinking of refurbishing it and manufacturing novelty items. This is what happens in the business world; you buy and you sell, and once you get in trouble you try to bail out.
In my opinion, the definition of a business is an entity that has three elements; inputs, processes, and outputs. Under ASC 805-10-55-4 “A business consists of inputs and processes applied to those inputs that have the ability to create outputs. Although businesses usually have outputs, outputs are not usually required for an integrated set to qualify as a business. The three elements of a business are defined as follows, an input is any economic resource that creates or has the ability to create, outputs when one or more processes are applied to it. An example of that would be long lived assets. A process is any system, standard, protocol, convention, or rules that when applied to input or inputs has the ability to create outputs. An example of that would be operational processes or resource management processes. An output is defined as the result of inputs and processes applied to those inputs that provide or have the ability to provide a return in......

...would in total constitute an infringing copy for the
purposes of the Copyright Act, he or she must first obtain the
written permission of the author to do so.
USERS AND ACCOUNTING INFORMATION
PREFERENCES OF GOVERNMENT DEPARTMENT
FINANCIAL REPORTS
by Helen R Mignot B (Bus)
A thesis submitted in partial fulfilment of the requirements
for the award of Master of Business (Accounting)
at the Faculty of Business
Edith Cowan University
Date of Submission: 05 February 1996
ACKNOWLEDGMENTS AND DEDICATION
I wish to thank all those who provided me with support in
completing this thesis. In particular I am grateful to my
supervisor Associate Professor Colin Dolley for his care,
encouragement and time; Magda Kaziniec at Curtin University
School of Accounting for her vital clerical assistance; and the
office staff at Edith Cowan University School of Accounting for
organising necessary resources.
I would also like to dedicate this work to my father Ray, and
mother Rosemary (posthumously) who always told me I was
capable of achieving anything, and my partner Tony King for
his encouraging support.
iii
ABSTRACT
The introduction of an accounting standard requiring government
departments to replace fund-type, cash-based accounting statements
with business-type, accrual based accounting statements has led to
criticism that business-type, general purpose financial statements do
not take account of the information requirements of major users.
Such......

...more than the sum of the separate entities.
18. The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is:
a. to provide information relevant to the controlling stockholders.
b. to represent the view that the affiliated companies are a separate, identifiable economic entity.
c. to emphasis control of the whole by a single management.
d. to include only a portion of the subsidiary’s assets, liabilities, revenues, expenses, gains, and losses.
19. Which of the following statements is correct?
a. Total elimination is consistent with the parent company concept.
b. Partial elimination is consistent with the economic unit concept.
c. Past accounting standards required the total elimination of unrealized intercompany profit in assets acquired from affiliated companies.
d. none of these.
20. Under the parent company concept, consolidated net income __________ the consolidated net income under the economic unit concept.
a. is the same as
b. is higher than
c. is lower than
d. can be higher or lower than
21. Under the economic unit concept, noncontrolling interest in net assets is treated as
a. a liability.
b. an asset.
c. stockholders' equity.
d. an expense.
22. The parent company concept adjusts subsidiary net asset values for the
a. differences between cost and fair value.
b. differences between cost and book value.
c. total......